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The pressure builds for competition law reform

Proposed changes to Canada's Competition Act elicit strong reactions and little agreement.

Pressure builds for competition law reform

When the federal government introduced proposed changes to Canada’s Competition Act last month, the Business Council of Canada reacted with outrage. It called the changes a “dramatic overhaul” of the competition regime, an “ambush” that would destroy the legal foundation allowing Canadian companies to compete globally.

The council, representing Canada’s largest corporations, accused the government of acting “in bad faith” by introducing proposed changes to the Competition Act without adequate consultation. It claimed that the changes, including the elimination of the efficiencies defence in mergers and new powers to compel companies to provide information for market studies, would politicize the process and weaken competition in the Canadian economy.

Yet for others, the legislation, introduced by Finance Minister Chrystia Freeland, is only a partial, tentative reform, which they fear may delay the long-awaited rewrite of the Competition Act promised by the government.

“This is not a radical overhaul,” said Jennifer Quaid, associate professor of law at University of Ottawa. “Three provisions do not a massive overhaul make.” While she says strengthening the competitive regime is needed, Quaid believes the bill is “a poorly executed attempt to get some quick wins,” for the Liberal government.

Whether it’s Armageddon for the Canadian economy or a political move by a beleaguered government, Bill C-56 has left few observers indifferent.

In part, it’s because the changes to Canada’s competition regime, usually of interest only to large corporations, specialized legal practitioners and a handful of academics, have collided with the concerns of an anxious and sometimes angry public in the face of soaring inflation.

The Trudeau government introduced the proposed changes at the same time as a package of measures aimed at halting the sharp rise in grocery prices and the galloping cost of housing. Dubbed the Affordable Housing and Groceries Act, C-56 includes the rebate of the GST charged on the construction of new rental housing.

“More competition will ease sticker shock at the grocery checkout line,” Freeland said in support of the bill. Packaging the competition changes and GST rebate in the same piece of legislation means the bill will likely pass into law quickly. Not only is the GST rebate a popular measure, but both the Conservatives and the NDP have presented their own private members’ bills on some of the same competition issues, though they differ.

The latest package follows last year’s enactment of a series of other changes in the law that include making wage-fixing a criminal offence, increasing fines for deceptive marketing and allowing private parties to take legal action for abuse of dominance. And it comes in the wake of a concerted campaign by Competition Commissioner Matthew Boswell for a broad range of measures to “modernize and strengthen” the Act, particularly regarding merger enforcement.

This all comes as antitrust authorities in the United States and the European Union are cranking up enforcement against large companies, especially in the digital economy, and attempting to flex their muscles in the face of what they see as growing anti-competitive trends.

In the U.S., the Justice Department and Federal Trade Commission announced updated merger guidelines in July that aim to keep pace with the digital age and changing market conditions, reflecting concern about how digital platforms use their power to stifle competition. Meanwhile, the Justice Department has accused Google of illegally abusing its dominant position over online search to stifle competition in the first modern anti-monopoly trial now underway in Washington, D.C. The government has also recently filed an antitrust lawsuit against Amazon, which dominates the U.S. online shopping market.

The EU is also stepping up its enforcement actions and has set up a series of rules for dominant digital players like Meta and Amazon, recently blocking a merger of online booking software companies. As for Canada, “we’re an outlier because we are late to the game,” said Keldon Bester, director of the Canadian Anti-Monopoly Project, who is still uncertain whether the government will proceed with broader competition reform.

“I think it could go either way,” he said. “But the reality is that there’s really no path that doesn’t take real courage.”

Peter Flynn, an associate in the Competition and Foreign Investment Group at Stikeman Elliott, isn’t convinced major competition reform is even needed. While there may be room for improvement, he doesn’t see why special measures are required to deal with the digital economy. “Do we really need more regulation and more barriers, or do we need to let actual competition thrive and step back from the government putting their thumb on the scale?”

As for Bill C-56, Flynn discounts the impact of eliminating the specific efficiencies defence, which critics have seen as a Canadian anomaly that favours corporate concentration. The defence allows anti-competitive mergers to go ahead if companies can prove that economic efficiencies outweigh the negative impacts of a deal.

“It’s a very small number of cases that really have turned on that (efficiencies) defence.” He said that most mergers, including the Rogers-Shaw telecom transaction, go through in any case.

“In Rogers-Shaw, efficiencies didn’t matter,” Flynn said. “The court found it was pro-competitive with the divestiture (of Freedom Mobile).”

The market studies provision is probably the most controversial part of C-56. The Competition Bureau has long conducted such studies but has only been able to get key data from companies on a voluntary basis. That’s proved problematic. In its study of Canada’s retail grocery market, released this summer, the Bureau noted that “the level of cooperation varied significantly and was not fulsome. In many instances, the Bureau was not able to obtain complete and precise financial data, despite its repeated requests.”

The bill will empower the industry minister to direct the Competition Bureau to conduct an inquiry into the state of competition in any market or industry, in which case companies will be compelled to provide relevant market data.

Kearney, a partner in the Competition, Antitrust and Foreign Investment practice at Davies in Toronto, says she doesn’t see the changes in Bill C-56 as radical. She understands why the minister is involved. “It’s responding to what’s important to Canadians,” she said. 

And even if a market study is ordered, it may find that there are no issues that are of concern. Yet Kearney is worried that there could be unintended consequences from overuse of this new power. Market studies can be expensive, and the expense borne by companies providing relevant data could add to their costs and thereby add inflationary pressures to their industry.

The bill’s third measure would allow the Competition Bureau to go after “collaborations” that stifle competition in sectors like groceries, where large chains make it difficult for small competitors to emerge, by controlling access to real estate, for example, or where food suppliers cold-shoulder smaller retailers.

As for the broader competition law review, the jury is still out. As the government edges towards an election with continued weak polling results, it may see promotion of competition as a vote winner. Or it may feel that it’s already spent what little political capital it has left on the two partial reforms and delay a more global reform that could unleash well-organized opposition.

A further wild card is the fate of Commissioner Boswell. His term ends in March, and there’s no indication if he will stay on or be replaced.